Does a foreign corporation that enters New York only to meet with a prospective accountant, banker, lawyer, or underwriter become subject to the Article 9-A franchise tax?
Plain-English summary
A foreign corporation ("XYZ") comes into New York only to meet with an accountant, banker, lawyer, or securities underwriter it might engage to represent it. It does not otherwise do business in New York, maintain an office, employ capital, own or lease property, or hold itself out as doing business here. Ernst & Young asked whether those limited meetings make XYZ subject to the Article 9-A franchise tax.
No. "Doing business" is used in a comprehensive sense (20 NYCRR 1-3.2(b)) and is judged on the facts -- the nature, continuity, frequency, and regularity of the corporation's New York activities, its purposes, the location of its offices, its use of New York agents/officers/employees, and where its management sits. The regulations (20 NYCRR 1-3.3) also list activities that, by themselves, are not doing business. Coming into New York for the limited purpose of meeting a prospective professional adviser does not constitute doing business under section 209.1 and 20 NYCRR 1-3.2(b). XYZ is therefore not subject to the Article 9-A franchise tax.
What this means for you
"Doing business" is a facts-and-circumstances test
The Department weighs the nature, continuity, frequency, and regularity of a corporation's New York activities, its purposes, its offices, its New York personnel, and the seat of its management.
Limited meetings to engage a professional adviser are not doing business
A foreign corporation that enters New York only to meet with a prospective accountant, banker, lawyer, or underwriter -- and does nothing else here -- is not doing business and is not subject to the Article 9-A franchise tax.
Several incidental activities are protected by regulation
20 NYCRR 1-3.3 lists activities (such as keeping bank balances, holding securities in safekeeping, or an officer's office) that alone do not amount to doing business; combining them does not either.
Common questions
Q: Does meeting with a New York accountant, banker, lawyer, or underwriter create franchise-tax nexus?
A: No. Entering New York only for those limited meetings is not "doing business" under section 209.1 and 20 NYCRR 1-3.2(b).
Q: What makes a foreign corporation "doing business" in New York?
A: A facts-and-circumstances inquiry into the nature, continuity, frequency, and regularity of its activities, its purposes, offices, New York personnel, and seat of management.
Q: Are incidental contacts protected?
A: Yes. 20 NYCRR 1-3.3 lists activities -- like maintaining bank balances or securities in safekeeping -- that by themselves are not doing business.
Citations and references
Statutes, regulations, and authorities:
- Tax Law section 209.1 (Article 9-A franchise tax)
- 20 NYCRR 1-3.2(b) ("doing business" defined; facts-and-circumstances factors)
- 20 NYCRR 1-3.3 (activities that, alone or combined, are not doing business)
Source
- Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1996.htm
- Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a96_17c.pdf
Original ruling text
New York State Department of Taxation and Finance
Taxpayer Services Division
Technical Services Bureau
TSB-A-96 (17) C
Corporation Tax
July 24, 1996
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION
PETITION NO. C960425B
On April 25, 1996, a Petition for Advisory Opinion was received from Ernst & Young LLP,
787 Seventh Avenue, New York 10019.
The issue raised by Petitioner, Ernst & Young LLP, is whether the activities of the
corporation described below constitute "doing business" in New York State subjecting the
corporation to the franchise tax imposed under Article 9-A of the Tax Law.
Petitioner submits the following facts as the basis for this Advisory Opinion.
XYZ corporation, a foreign corporation, enters New York State for the limited purpose of
meeting with an accountant, banker, lawyer or securities underwriter in order to possibly engage that
person, persons or firm to represent XYZ. Petitioner states that XYZ does not otherwise do business
in New York State and does not maintain an office, employ capital, own or lease property, or do
anything in New York State other than the activities stated. Petitioner states that XYZ does not in
any way hold itself out to be doing business in New York State.
Section 209.1 of Article 9-A of the Tax Law imposes an annual franchise tax on domestic
or foreign corporations for the privilege of exercising a corporate franchise, doing business,
employing capital, owning or leasing property in a corporate or organized capacity, or maintaining
an office in New York State for all or any part of each of its fiscal or calendar years.
Section 1-3.2(b) of the Business Corporation Franchise Tax Regulations ("Article 9-A
Regulations") provides that:
(1) [t]he term doing business is used in a comprehensive sense and includes all
activities which occupy the time or labor of people for profit. Regardless of the
nature of its activities, every corporation organized for profit and carrying out any of
the purposes of its organization is deemed to be doing business for the purposes of
the tax. In determining whether a corporation is doing business, it is immaterial
whether its activities actually result in a profit or a loss.
(2) Whether a corporation is doing business in New York State is determined by the
facts in each case. Consideration is given to such factors as:
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Corporation Tax
July 24, 1996
(i) the nature, continuity, frequency, and regularity of the activities of the corporation
in New York State;
(ii) the purposes for which the corporation was organized;
(iii) the location of its offices and other places of business;
(iv) the employment in New York State of agents, officers and employees; and
(v) the location of the actual seat of management or control of the corporation.
Section 1-3.3 of the Article 9-A Regulations states that:
[a] foreign corporation will not be deemed to be doing business, employing capital,
owning or leasing property in a corporate or organized capacity or maintaining an
office in New York State because of:
(a) the maintenance of cash balances with banks or trust companies in New
York State;
(b) the ownership of shares of stock or securities kept in New York State in
a safe deposit box, safe, vault or other receptacle rented for this purpose, or if
pledged as collateral security, or if deposited in safekeeping or custody accounts with
one or more banks or trust companies, or brokers who are members of a recognized
security exchange;
(c) the taking of any action by any such bank or trust company or broker,
which is incidental to the rendering of safekeeping or custodian service to such
corporation;
(d) the maintenance of an office in this State by one or more officers or
directors of the corporation who are not employees of the corporation if the
corporation is not otherwise doing business or employing capital in New York State
and does not own or lease property in New York State;
(e) the keeping of books or records of a corporation in New York State, if
such books or records are not kept by employees of such corporation and such
corporation does not otherwise do business, employ capital, own or lease property,
or maintain an office in New York State; or
(f) any combination of the foregoing activities.
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Corporation Tax
July 24, 1996
In this case, when XYZ comes into New York State for the limited purpose of meeting with
a prospective accountant, banker, lawyer or securities underwriter, those meetings for that limited
purpose do not constitute "doing business" in New York State as contemplated in section 209.1 of
the Tax Law and section 1-3.2(b) of the Article 9-A Regulations. Accordingly, XYZ would not be
subject to the franchise tax imposed under Article 9-A of the Tax Law.
DATED: July 24, 1996
NOTE:
/s/
John W. Bartlett
Deputy Director
Technical Services Bureau
The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.